Shares of beaten-down tech company Fastly (FSLY 4.03%) have been showing signs of life once again. Granted, there doesn't appear to be anything Fastly is doing itself to cause the short-term bump in stock price, but rather a rumor that Fastly could be acquired by Alphabet's Google. Still down nearly 90% from all-time highs last reached in 2020, is this internet infrastructure stock a buy?
Not the first takeover rumor
It makes sense that an internet titan like Google might be interested in acquiring Fastly. The company is a next-gen content delivery network (CDN) and edge computing technologist, helping its customers manage data and internet content closer to the end user. Since its initial public offering in spring 2019, sales have more than doubled, so clearly Fastly is doing something right as enterprises look for more efficient ways to manage an explosion of activity on the web.
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But this rumor of a takeover offer isn't the first. Back in late 2020, there was speculation Cisco Systems might be interested in Fastly, and in mid-2021 the idea the company was a takeover target was floated again after Fastly brought in CFO Ron Kisling. Kisling was the CFO of Fitbit, which was acquired by Google in early 2021.
Buy on the speculation?
If you're a long-term investor, buying Fastly right now on the mere hopes the company is acquired isn't a great move. While there are compelling reasons to believe Fastly could be taken over, the edge computing CDN needs to be weighed on its own merits.
And that's where things get a bit dicey. Fastly grew revenue at a 22% pace in 2021 (a slowdown from a 45% pace in 2020). At the midpoint of guidance, management expects only a 14% increase in revenue in 2022. Plus, adjusted operating losses are expected to increase to about $65 million compared to an adjusted operating loss of $55 million in 2021. Add in the fact Fastly had $528 million in cash and short-term investments and $102 million in long-term marketable investments, offset by $933 million in debt. Slowing growth, widening losses, and a balance sheet with more debt than liquidity isn't exactly a compelling reason to be a shareholder right now.
Nevertheless, Fastly's enterprise value is at $2.59 billion, valuing the company at just over six times 2022 expected sales. If purchased outright and plugged into a larger internet business ecosystem, Fastly could offer significant value. For the average investor, though, Fastly shares offer lots of risk and highly uncertain reward as there are plenty of question marks surrounding the company's long-term viability.
